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Silicon Valley Bank collapse: Here's what we know so far about failure of the prominent lender

Written by  Shgun S -- March 11th 2023 03:15 PM
Silicon Valley Bank collapse: Here's what we know so far about failure of the prominent lender

Silicon Valley Bank collapse: Here's what we know so far about failure of the prominent lender

New York (US), March 11: Silicon Valley Bank, one of the most prominent lenders in the world of technology startups, collapsed on Friday under the weight of bad decisions and panicked customers, forcing the US federal government to intervene, according to The New York Times.

The Federal Deposit Insurance Corporation announced on Friday that it would acquire Silicon Valley Bank, a 40-year-old Santa Clara, California-based institution. 

According to the New York Times, the bank's failure is the second largest in US history and the largest since the 2008 financial crisis. The move gave the regulator control over nearly USD 175 billion in customer deposits. While the swift demise of the country's 16th largest bank brought back memories of the global financial panic a decade and a half ago, it did not immediately spark fears of widespread destruction in the financial industry or the global economy.

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Silicon Valley Bank's failure occurred two days after its emergency moves to handle withdrawal requests and a precipitous drop in the value of its investment holdings shocked Wall Street and depositors, sending its stock tumbling. According to a person familiar with the negotiations, the bank, which had USD 209 billion in assets at the end of 2022, had been working with financial advisers until Friday morning to find a buyer.

While Silicon Valley Bank's problems are unique, a financial contagion appeared to spread throughout the banking sector, prompting Treasury Secretary Janet Yellen to publicly reassure investors that the banking system was resilient.

Ameya Vikas Ranadive, Equity Research Analyst at Choice Broking, commented on the failure of the American lender: "SVB Financials, a bank that mostly finances startups, saw a 60 per cent share price drop, which precipitated the sell-off in American markets. This had an effect on attitudes, and banking stocks declined due to worries that higher interest rates might result in loan payback defaults."

According to the daily newspaper, investors dumped stocks of Silicon Valley Bank's peers, including First Republic, Signature Bank, and Western Alliance, many of which cater to startup clients and have similar investment portfolios.

At least five banks' shares were repeatedly halted throughout the day as their steep declines triggered stock exchange volatility limits.

In comparison, some of the country's largest banks appeared to be more immune to the fallout. Following a drop on Thursday, shares of JPMorgan, Wells Fargo, and Citigroup were generally flat on Friday, according to the New York Times.

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